Tuesday, March 3, 2020

How do we follow the money? Canadian real estate gets ‘abysmal’ anti-money laundering grades

How do we follow the money? Canadian real estate gets ‘abysmal’ anti-money laundering grades

 WATCH: A former FinTRAC intelligence officer explains the real-world consequences of money laundering in Canada.

An internal report from Canada’s anti-money laundering watchdog found nearly half of the real estate companies audited weren’t complying with key areas of the country’s anti-money laundering regime and experts warn these “serious gaps” can hurt criminal investigations. 
The report prepared by the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) for Finance Minister Bill Morneau included an audit of 172 real estate companies, brokers and developers in 2017-18.
As B.C. cracks down on money laundering, Ontario casinos risk becoming ground zero

 As B.C. cracks down on money laundering, Ontario casinos risk becoming ground zero
FinTRAC found a 52 per cent compliance rate when it came to training employees to detect money laundering or suspicious transactions and 53 per cent in the area of client identification – a requirement for real estate agents to verify a person’s identity.
“There is still a misunderstanding across the sector as to how the real estate sector can be used for money laundering and terrorism financing,” read the document obtained by Global News under access to information laws.
Politics takes centre stage as B.C. money laundering inquiry begins

 Politics takes centre stage as B.C. money laundering inquiry begins
FinTRAC’s on-site examinations targeted large brokerages in Vancouver, B.C.’s Lower Mainland, the Greater Toronto Area and Montreal. B.C. has launched an inquiry into how money laundering distorted housing prices in the province and fuelled the opioid crisis. 
Matt McGuire, a former intelligence officer for FinTRAC, called the compliance rates “abysmal.”
“It’s a significant non-compliance rate,” said McGuire. “How can you expect agents and brokers to detect suspicious transactions if they don’t know what they’re looking for?”
When it comes to identifying clients, real estate brokers are required to record simple details to confirm a person’s identity, like information on a driver’s licence, according to McGuire.
I can forgive somebody not being able to pick out a suspicious transaction on a real estate deal, given a limited fact scenario, but I can’t forgive the sloppiness of not identifying somebody with a very simple set of rules.
“How are we supposed to follow the money if we don’t know who is involved?”
Laws against money laundering and terrorist financing require sectors – like banking, casinos and real estate – to identify their clients, keep records and report large cash deals and other suspicious transactions to the federal government.
FinTRAC warned that the real-estate sector “still has one of the lowest reporting levels” among sectors, but did not offer detailed numbers.
McGuire said Canadian real estate has been “extensively exploited” by the problem of money laundering and all financial sectors need to fight against it.
“It’s important in the first line of defence, the people actually interacting with those who are buying and selling property, pay attention to the potential for suspicious indicators that there might be crime behind the transactions.” 
The report did find the sector performed well in two other areas, including 100 per cent of companies fulfilling the requirement to have an anti-money laundering compliance officer and a 95 per cent pass rate with third-party determination – identifying a person or entity who instructs another person to conduct a financial transaction on their behalf.
McGuire said the 100 per cent compliance rate is misleading, as firms are graded solely on whether a person is identified by the company as a compliance officer.
“I can point and if somebody puts up their hand in the room, you have a compliance officer. One hundred per cent pass,” he said. “There’s no measure of how good you are or how well you know the requirements.”
The report followed previous years of FinTRAC data from 2012-16 that showed more than 800 real estate companies had “significant” or “very significant” deficiencies with the anti-money laundering and anti-terrorist financing controls.
Money laundering expert says Canada failing to prosecute financial crimes

 Money laundering expert says Canada failing to prosecute financial crimes
Renée Bercier, a spokesperson for FinTRAC, said the real estate sector performed well in some areas, but needed to improve in the areas of training and identifying clients.
“What FINTRAC has found more generally in the real estate sector is that the level of compliance knowledge and resources varies across the sector and is often a function of an entity’s size, capacity and access to resources,” Bercier said in an emailed statement.
Bercier noted that not all 172 examinations assessed training or client identification.
“In order to address these issues, FINTRAC is working with real estate entities and the Canadian Real Estate Association to increase this sector’s understanding of their obligations under [anti-money laundering laws],” Bercier said.
The agency noted that over $172 million was allotted in the 2019 budget for the RCMP, CRA and FinTRAC to help crack down on financial crimes.

Warnings for Ontario and elsewhere

The CN Tower can be seen in the Toronto skyline in Toronto, Ontario. THE CANADIAN PRESS/Cole Burston
 The CN Tower can be seen in the Toronto skyline in Toronto, Ontario. THE CANADIAN PRESS/Cole Burston THE CANADIAN PRESS/Cole Burston
Criminals using Canada’s hot housing markets of Vancouver, Toronto and Montreal to launder illicit cash have grabbed headlines across the country.
“The more criminal money there is, the more demand there is for property, the higher the prices go,” McGuire said. “That can impact the accessibility of housing.”
Global News first reported on a secret police study in 2018 that roughly $1 billion was laundered through B.C.’s real estate market in 2016 in homes valued above $3 million. Police did not study the non-luxury home market, but believe there is significant money laundering in lower-valued homes as well.
A subsequent report from a panel of B.C. experts on the issue estimated that the problem of money laundering in Canada’s real estate sector was roughly $46.7 billion.
Denis Meunier, the former deputy director of financial intelligence at FinTRAC from 2008 to 2011, said the real-estate industry needs better training and more accurate record-keeping to help federal agencies tackle the billion-dollar problem.
“These requirements that haven’t been met are serious gaps,” he told Global News. “You’re supposed to find out if the person in front of me are ‘they doing business on behalf of someone else?”
Meunier said FinTRAC findings were particularly galling as real-estate brokers and firms had low compliance rates when it came to identifying clients.
“It’s not encouraging,” he said. “You’re looking at about half of the population that isn’t meeting the requirements.”
Canada is a great place to launder money because of our lack of ownership transparency, according to experts.
Houses or condos can act as a kind of bank account for criminals, as they can park large amounts of illicit cash by buying up real estate and hide the purchases behind numbered corporations or shell companies located in offshore tax havens.
Meunier said client identification records can help guide investigators looking into organized crime.
“If you’re not recording, you’re not providing the right kind of information so that records are available when criminal investigations are conducted in [real time].”

Calls for change

Tim Hudak, president of the Ontario Real Estate Association, said he was “very nervous” that Toronto’s housing market could see an influx of dirty cash as B.C. regulators crack down.
“I’m very nervous that the Greater Toronto area will become the epicentre for dirty money in Western democracies,” Hudak told Global News. “For some reason, Canada still seems to be in a bit of the dark ages when it allows drug dealers to hide behind numbered companies and snap up real estate.”
B.C. announced Canada’s first beneficial ownership registry set to begin in May 2020, aimed at ending the use of trusts, corporations or partnerships to hide transactions from public view. The province has also made a new anti-money laundering course mandatory for all real estate agents.
German report into money laundering under fire at Cullen Commission Inquiry

 German report into money laundering under fire at Cullen Commission Inquiry
Hudak has been calling on Premier Doug Ford’s government to adopt a beneficial ownership registry with harsh penalties for those who break the law. He also supported calls for anti-money mandatory training for people working in real-estate.
“If B.C. closes their door to the flood of laundered money, guess where it’s all going to go? The province of Ontario,” Hudak said.
A spokesperson for Ontario Finance Minister Rod Philips said the province would not commit to its own registry but said it was in “

consultations” on the issue with Ottawa and other provinces.
“The government is also engaging in various actions to address money laundering including collecting certain beneficial ownership information under the Land Transfer Tax Act and working proactively to assist the Canada Revenue Agency in addressing non-compliance in the real estate sector,” Scott Blodgett said in an email. 
Bill Blair says federal government will assist in B.C. money laundering inquiry

 Bill Blair says federal government will assist in B.C. money laundering inquiry
Quebec’s finance minister said the government held a “public consultation a few weeks ago” on corporate transparency and is currently under analysis.
“We are also working on reinforcing enacting stricter rules against tax evasion and are looking into giving more powers to Revenu Québec to reinforce transparency,” spokesperson Fanny Beaudry-Campeau said.

For Hudak, tackling the issue of money laundering makes the housing markets in major cities a more even playing field.
“Our concern is that a young couple who’ve been scraping every dime together to finally find a place to call their own is left on the sidelines while some drug dealer’s niece snaps up that property.”

No comments:

Post a Comment

Comments always welcome!